Future of Corporate Tower May Hinge on a New Use
By CHARLES V. BAGLI
December 24, 2012
The AT&T Building, a lavish $200 million headquarters with a seven-story arch at 550 Madison Avenue, was a symbol of a resurgent New York when it opened in 1983 after a decade of municipal woes and corporate flight. The 37-story rose-granite tower, now known as the Sony Building, is on the auction block for as much as $1 billion. About 20 prospective buyers submitted bids last week, hoping to turn the building into condominiums, a luxury hotel, a chic retail arcade or maybe even office space for small, high-end firms. But not a corporate headquarters.
The potential evolution says a lot about a city and a neighborhood where Calvin Klein, Armani, Hermès, Dior and Gucci are paying some of the world’s highest retail rents. On 57th Street, developers of two projects are vying to build North America’s tallest, most gilded residential tower, with condos selling to princes and billionaires for tens of millions of dollars each. The Sony Building between 55th and 56th Streets, with its wood-paneled board rooms and sweeping white marble staircase, may be more suited today for tenants like hedge funds, which do not flinch at rents above $120 a square foot.
“This building has the right height and the right location to be a success,” said Mitchell Moss, an urban planner at New York University. “The only question is, what goes inside the building? The underlying appeal of that neighborhood has gotten so strong that it’s too expensive for a corporate headquarters.”
Developers turning in their first-round bids included Vornado Realty Trust, Boston Properties, Mitsubishi Trust, Mitsui Fudosan and RXR Realty, according to prospective buyers and to real estate executives. Others bidding were Steven C. Witkoff, Harry B. Macklowe and Edward J. Minskoff, they said.
When the building was under construction in 1981, New York City was struggling to stave off an economic malaise, the loss of industrial jobs, and long-term decay. AT&T’s headquarters, like the IBM Building under construction a block away and Trump Tower around the corner on Fifth Avenue, offered signs of a renaissance.
But AT&T, which was in the midst of divesting itself of all the regional telephone operating companies, soon leased nearly half of the tower to Sony. The Japanese company eventually bought the building in 2002 for $236 million. Sony is not the dominant force in consumer electronics that it once was. Last April, the company said it would cut 10,000 jobs. Soon, it put the tower up for sale.
Sony’s real estate broker, Douglas Harmon of Eastdil Secured, gave prospective buyers a 216-page confidential offering memorandum entitled, “The Icon at 550 Madison Avenue.” Sony plans to remain in the building for three years, before moving to a new location. Many buyers said the Sony Building, now 30, will have to be gutted, which would cost tens of millions of dollars. They are considering a mix of uses, including hotels and high-end shops.
Mr. Witkoff confirmed that he had submitted a bid, with plans to convert the top of the tower to condominiums. “There’s no way that you can make sense out of this deal if it’s office space,” he said. “In my opinion, the only way it works is if the top goes residential. You’ll get the highest numbers from condominiums.”
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“Office buildings are our factories – whether for tech, creative or traditional industries we must continue to grow our modern factories to create new jobs,” said United States Senator Chuck Schumer.